Exception to the Rule of Thumb

About a week ago, I read a headline “70 is the New Retirement Age”. It came from an article in Money magazine penned by Suze Orman. Orman, as many of you know, is a former financial advisor turned author and TV host. The success of her writing and television career has put her in a class of financial gurus, up there with other well-regarded consumer favorites like Dave Ramsey and Tony Robbins.

In the article, Orman contends that 70 is the new retirement age. Period. She says a year, or even a month before 70 won’t work. She justifies that directive with a lot of valid points: people are living longer, health care costs are expensive and unpredictable, your kids probably won’t be able to take care of you if you run out of money. True, true and true, but here’s my question for you – do such valid observations about demographic and statistical data prove her theory that 70 is the earliest you should retire? No, they do not. Period.

Saving for retirement has certainly become a tough task as we continue to live longer, but even with all the challenges, it’s entirely possible to retire in your late 50’s or 60’s. She is correct that retirement timing matters, but not so much so that it comes down to the exact month you leave work. To imply a successful retirement plan at 70, would be a failed plan at 69 and 11 months is simply misleading.

If Suze would have said that retiring at 70 is a good rule of thumb for the next generation, then I would have agreed with her. Instead, she flatly said working longer is the key to a secure retirement and that everyone should make it their goal to work until they are 70. I won’t dispute the benefits that come from delayed retirement, but clocking out on your seventieth birthday won’t guarantee you success. One of the largest factors in determining your probability of success in retirement is how much you spend. Millions of retirees in our country never accumulated a vast nest egg, and they didn’t work until this artificial deadline. It’s their modest spending that keeps them afloat. Working longer is one way to shore up retirement, but it’s not the only way.

Universal financial statements from people like Suze Orman and Dave Ramsey get a lot of press and we tend to put stock into what they say. After all, they are the experts, right? When you hear Dave Ramsey say the only debt you should have is a 15-year fixed mortgage or that you should cut up your credit cards, it’s natural to believe what he is saying is true. Indeed, there is truth in what he says. His recommendations have helped a great many people improve their financial life; however, that doesn’t make his recommendations appropriate for everyone everywhere. Penicillin is a great cure for a lot of illnesses, but that doesn’t mean Dr. Oz should tout it as the universal solution to all our health problems.

A rule of thumb by definition is a principle that applies broadly but is not strictly accurate or reliable in every situation. When delivering advice to a wide audience, a rule of thumb is about as good as anyone can do. It’s not as if retiring at 70 or using cash versus credit is a particularly harmful piece of advice to follow. Most people would be better off heeding such advice. The trouble is, these generalities are presented as universal truths. That message is harmful because it implies to someone who is financially prepared that they are putting themselves at risk by retiring sooner. It tells the person who accumulates miles, cash back and a good FICO score by using credit responsibly that they are doing something wrong. Perhaps you are discerning enough to know the gurus should be ignored from time to time, but for those craving simple answers to complex problems, it’s awfully tempting to follow their advice.

It would be nice if things were as simple as the talking heads would have us believe. Managing our investments, allocating our savings and achieving our goals would be a lot easier if there were straight-forward, prescriptive solutions that everyone could apply. Wouldn’t it be nice if you could figure out how much stock to have in your portfolio by subtracting your age from 100? Wouldn’t it be easier if we knew everyone should file for Social Security benefits when they turn 65? Wouldn’t it be great if we all knew the exact year we should retire? Unfortunately, such shortcuts are no substitute for the nuanced and individualized planning it takes to answer these questions accurately.

When it comes to personal finance, there are few rules that apply universally. While financial rules of thumb can steer us in the right direction, it’s important to take the extra step of finding out if they really apply to your situation. Before you treat them as doctrine, remember that you just might be the exception to the rule of thumb.